Is China a Foreign Investment Goldmine or Minefield? A Chinese salesgirl for Nokia peers out of a shop near a giant replica of a Nokia mobile phone at a shopping mall in Beijing, China, Sunday, June 29, 2003. China overtook the U.S. as the largest mobile phone market in the world, with more than 200 million users. Many international mobile phone manufacturers are keen to increase their share of a market with a potential of 1.3 billion population. China has emerged as a leitmotif in virtually every discussion of economies at this year¡¯s Annual Meeting, said Bruce Nussbaum, Editorial Page Editor, Business Week, USA. It is a major market and manufacturer, an engine of economic growth and a competitor for investment. But is anyone making money there? With its massive pool of labour and vast public savings, China is in an excellent position to integrate further into the global economy, said Donald L. Evans, US Secretary of Commerce. China¡¯s new leaders have managed a remarkably smooth power transition and the country is moving in the right direction, he said. Unprecedented dialogue between Beijing and Washington has produced a very good relationship and Evans said he is convinced that China¡¯s leadership is trying to put in place the elements of long-term, sustainable economic growth. In particular, he said, the leadership is focusing on how to spread the boom in growth on China¡¯s east coast to its impoverished western interior. But China still faces obstacles to achieving these goals, Evans said. Non-performing loans and government determined interest rates have hobbled the ability of China¡¯s financial system to charge rates commensurate with lending risks and therefore allocate the nation¡¯s resources efficiently. Inadequate protection for intellectual property rights threatens China¡¯s future innovators as well as foreign investors. China also faces a looming power shortage, he said. ¡°The big question is going to be, are they going to be more comfortable in letting market forces drive their economy, or are they going to continue to try to plan centrally and protect some of their domestic industries,¡± Evans said. In particular, he singled out China¡¯s promotion of an indigenous cellular standard, TD-SCDMA, as a form of protectionism. If your business isn¡¯t making money in China, it probably wouldn¡¯t make money anywhere else, said Carlos Ghosn, President, Nissan Motor Company, Japan; Co-Chair of the Annual Meeting 2004. China is the second-most profitable automotive market in the world, he said, after the United States. Dinesh C. Paliwal, Group Executive Vice-President and Head of Automation Technologies Worldwide, ABB, Switzerland, agreed, saying China was one of ABB¡¯s most profitable countries of operation. At the same time, Nissan is battling to protect its own intellectual property and is suing local car makers for copying its designs, brand names and logo. While the chances of a legal victory may be slim, Ghosn said i t is Nissan¡¯s responsibility as a foreign investor to raise this issue¡¯s profile. Javier Solana from Spain, Secretary-General of the EU Council, adresses a plenary session at the Annual Meeting 2004 of the World Economic Forum, in Davos, Switzerland. Victor L. L. Chu, Chairman and Chief Executive Officer, First Eastern Investment Group, Hong Kong SAR, said it was an excellent time to invest in China assets. ¡°The best time to go into China is now,¡± he said. Most experts believe the Chinese currency, the renminbi, is undervalued and that China will eventually have to raise its official rate against the US dollar. Chu said this could involve pegging the renminbi against a basket of trading currencies or expanding the range in which it is allowed to fluctuate. Chu said that to invest in China still required that investors effectively exploit their political and personal contacts there, since China¡¯s inefficient legal system is often incapable of providing satisfactory solutions to complex business disputes. Ulrich Schumacher, President and Chief Executive Officer, Infineon Technologies, Germany said that Infineon plans to shift 30% of its global investment into China in the next three years. ¡°The timing is right to do big investments in China,¡± he said. Schumacher challenged the conventional wisdom that China is suited only to mass production and that engineering and design has to come from highly paid engineers in developed countries. Infineon, he said, is finding engineers in China who can produce chip designs more cheaply and quickly than their counterparts in Germany . and will even work on weekends. Poor protection for intellectual property like chip design remains an impediment, he agreed, but said that innovation was occurring so fast that it made no sense to withhold cutting-edge designs from China. Within a year they are obsolete anyway. Consequently, Infineon this month opened a design centre in Xi¡¯an, in western China, where wages remain far below those on the booming east coast.